DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.

COURT OF APPEALS and the

ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP
MORTGAGE REDEMPTION INSURANCE POOL, respondents.

Doctrine:

1. Agent acting as such is not personally liable unless he expressly binds himself or exceeds his
authority.—Under Article 1897 of the Civil Code of the Philippines, “the agent who acts as
such is not personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers.”
2. Liability of the agent who exceeds the scope of his authority depends upon whether the 3rd
person is aware of the limits of agent’s powers.—The liability of an agent who exceeds the
scope of his authority depends upon whether the third person is aware of the limits of the
agent’s powers. There is no showing that Dans knew of the limitation on DBP’s authority to
solicit applications for MRI.
3. If the third person dealing with an agent is unaware of the limits of the authority conferred by
the principal on the agent and the third person has been deceived by the non-disclosure by
the agent, then the latter is liable for damages to him.—If the third person dealing with an
agent is unaware of the limits of the authority conferred by the principal on the agent and he
(third person) has been deceived by the non-disclosure thereof by the agent, then the latter is
liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of
the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that
the agent is liable when he acts without authority is founded upon the supposition that there
has been some wrong or omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952],
citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the
agency carries with it the implication that a deception was perpetrated on the unsuspecting
client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into
play.

Ponente: Quiason, J.,

Petitioner: DBP

Respondent: COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE
POOL

Principal: DBP MRI POOL

Agent: DBP

Present Petition: This is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R.
CV No. 26434 and its resolution denying reconsideration thereof.

Facts:
  In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law,
applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP),
Basilan Branch.
 As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance
Pool (DBP MRI Pool). (An MRI is a form of life insurance that covers part or all of
the insured’s mortgage balance in case of death or total disability.)
 From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for
the MRI premium. On August 15, 1987, Dans accomplished and submitted the “MRI
Application for Insurance” and the “Health Statement for DBP MRI Pool.”
 On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent,
was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP
MRI Pool was advised of the credit. (MEANING NAKA BAYAD NA SI DANS KASI GI
BAWAS NA SA ACCOUNT NYA ANG MRI PREMIUM PKUS SERVICE FEE NG BANK)
 On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. (ONLY A FEW DAYS LANG AFTER SYA NAG FILE
UG MRI NAMATAY SYA)
 On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for
MRI coverage, being over the acceptance age limit of 60 years at the time of application.
Development Bank of the Philippines vs. Court of Appeals, 231 SCRA 370, G.R. No.
109937 March 21, 1994. (MORE THAN A MONTH LANG AFTER SYA NAMATAY NA
DISAPPROVE ANG MRI)
 On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late
husband’s MRI application. The DBP offered to refund the premium of P1,476.00
which the deceased had paid, but Candida Dans refused to accept the same,
demanding payment of the face value of the MRI or an amount equivalent to the
loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which
the DBP later offered.

CASE FILED IN THE RTC BASILAN:

On February 10, 1989, respondent Estate, through Candida Dans as amdinistratrix, filed
a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the
insurance pool for “Collection of Sum of Money with Damages.”

Petitioner’s (DBP and DBP MRI Pool) Contention:

No insurance coverage shall be effected unless and until the application is approved by
the DBP MRI Pool as what was indicated in the Health Statement Declaration. That Mr. Dans is
not insured since his application for MRI was disapproved by the DBP MRI Pool.

Respondent’s (Candida Dans through the CA and the Estate) Contention:

Respondent Estate alleged that Dans became insured by the DBP MRI Pool when
DBP, with full knowledge of Dans’ age at the time of application, required him to apply
for MRI, and later collected the insurance premium thereon.
Respondent Estate therefore prayed: (1) that the sum P139,500.00, which it paid under
protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully
paid; and (3) that damages be awarded.

RTC Basilan’s Ruling:

 On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and
against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found
no privity of contract between it and the deceased. The trial court declared DBP in estoppel for
having led Dans into applying for MRI and actually collecting the premium and the service fee,
despite knowledge of his age ineligibility.

Court of Appeals Decision:

In a decision dated September 7, 1992, the appellate court affirmed in toto the decision
of the trial court. The DBP’s motion for reconsideration was denied in a resolution dated April
20, 1993.

ISSUE:
Whether or not DBP is liable for damages considering that it exceeded its authority as
the agent of DBP MRI Pool in accepting the MRI application of Juan B. Dans since it already
knew that he was already ineligible because of his advanced age.

RULING:

Yes.

Under Article 1897 of the Civil Code of the Philippines, “the agent who acts as such is
not personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his powers.”

The DBP is not authorized to accept applications for MRI when its clients are more than
60 years of age. Knowing all the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it accepted Dans’s
application for MRI by collecting the insurance premium, and deducting its agent’s
commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether
the third person is aware of the limits of the agent’s powers. There is no showing that Dans
knew of the limitation on DBP’s authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person) has been deceived by the
non-disclosure thereof by the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992],
citing Sentencia [Cuba] of September 25, 1907).

Inasmuch as the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the unsuspecting client, the provisions of
Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.

Notes:
1. The DBP’s liability, however, cannot be for the entire value of the insurance policy. To
assume that were it not for DBP’s concealment of the limits of its authority, Dans would
have secured an MRI from another insurance company, and therefore would have been
fully insured by the time he died, is highly speculative.
2. Considering his advanced age, there is no absolute certainty that Dans could obtain an
insurance coverage from another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-
third day from the date of release of his loan.